It happens every year, gas prices spike for various reasons. In February, a series of shutdowns and re-openings of our refineries occurs so that they may be cleaned and maintained. From May through September, we all travel more for vacations and summer holidays. The Middle East has been a volatile place since around 1923, when an Egyptian with serious mental problems formed the Muslim Brotherhood and decided that he didn’t want those bothersome Jews hanging around in the desert anymore. This particular cog in the commodities market has always been sensitive to the slightest sneeze of any of its constituencies. The increased demand from other emerging economies have served to apply an inflationary pressure. This latest spike however is a little different. In terms of real dollars, the relative price has been mostly stable. The value of what we are using to pay for it has actually decreased, and since we are slow to realize that, we are somewhat shocked to see our old friend inflation rear its ugly head at the pump.
Over the past 3 years, through Quantitative Easings I and II, our economy has inflated over 13%. I have had this argument over the years with my very learned friends who view economics through the prism of the monetarist theory. They will argue that unless and until the money supply has a velocity, (how quickly dollars are spent and respent,) then inflation will remain relatively low. For those of us from the Austrian School of thought however, rising prices are a symptom of inflation, while the volume of money is representative of its measure, and inflation measures that volume against a given volume of wealth. In other words, our relative wealth has been deteriorating in this country, while at the same time our printing presses at the Federal Reserve have been churning out an increasing supply of paper cash. While prices domestically have not responded as quickly, due to the velocity being slow, (a concession to the monetarists that velocity can have an effect upon the symptoms of inflation,) domestically anyhow, we have not seen the worst of it yet. The commodity known as oil however is a different story. Much of this is purchased or at least involves markets outside of our borders. Those markets do not care in the slightest about the velocity of our money, nor what our views as to the relative worth of the dollar may be. When we pay in dollars, they will demand more of them for a barrel of oil, while at the same time having not actually raised their prices at all, or at least no where near the increases that we are facing. It is going to get worse before it gets better too, as Ben Bernanke has already announced, with the President’s idiotic backing of course, a Quantitative Easing III.
We saw this of course at another time in our history. Stagflation was the result of these very same economic policies visited upon us by Richard Nixon and Jimmy Carter. When I was in High School, I can remember the subject of micro economics being taught by a history teacher, whom I learned over the years had absolutely no understanding of economics in the slightest, that inflation and unemployment were inversely related. One thing that the Carter Presidency should have taught us, was that this thinking was dangerously wrong. It would appear as though Barack Obama, Timothy Geitner, and Ben Bernanke missed that important lesson.
For the Gold Hawks out there, your views are just as dangerous for the exact opposite reason. Tying the currency to a hard commodity such as gold or silver would put a cap on the ability to create wealth and tie it to a finite substance’s availability. Should that commodity ever disappear from the market place, as it did in the late 1920′s, the result would be the same depression. Gold in fact made such a poor currency, that even when it was in use, people switched to paper certificates which were supposedly tied to gold and silver. I will concede though that we need the ability to audit the Fed, and to put that system under tight control. The volume of currency should be held consistent with the size of our economy, and be adjusted in conjunction with it, and not allowed to operate outside of those boundaries.
The President’s answer on gas prices however, that is another thing entirely. I’m just going to say it now. What a dope! I know that the office of the Presidency deserves respect, but that respect must be paid first and foremost by the person who holds that office. The, “we should never increase our domestic production because it will take x number of years to make a difference,” argument may be the single dumbest thing ever said by any human person on our planet. If only we had opened up ANWR during the Clinton Presidency, Drilling on the Coastal oil fields during the Bush Presidency, and the Bakken formation early on in the Obama Presidency, then we would be enjoying that production today. That any person with an IQ above their age would suggest that increasing our supply will have no effect upon prices at the pump is just embarrassing. My greatest fear is that future generations will look at us through the prism of history and think to themselves, how on Earth did we survive, as a species, the stupidity of this generation. There really is no kind or diplomatic way to describe the Obama Presidency any more. It has gotten that bad.
The real tragedy of Stagflation of course is that as employment remains disappointing, people will have actually less of the currency on hand to pay for the necessary goods and services which will have inflated prices attached. The news media is out there feverishly trying to tell all of America how rosy things are, now that the Obama Boom is in full swing. The trouble for them is this, people can feel in real terms that their living standards and life styles have been severely cramped. No matter how much the Press tells all how we have it better today than we did 6 years ago, just before the Democrats took over our House, we can all feel reality on a daily basis.